Growth in Asia Pacific - Case Study Example

Growth in Asia Pacific Management Theory Analysis The Asia Pacific or AP region has been in the news for a while now due to its growth in output, productivity and revenue. India and China have both been touted as the strongest contenders in the race to become the world’s next super powers. This has given rise to a trend of change within the entire AP region including Japan and other oriental states. This paper seeks to analyse the growth and dynamism pattern through varied management and economic theories. Competitive Advantage and Sustainable Entrepreneurial Growth: Before laying down the formal plan of action, it is necessary to understand the elements that will be involved in the strategy that has been developed later in the paper, from the perspective of the AP region in terms of understanding its growth process and its dynamic economy. This will help us understand the exact application of the theories through the length and breadth of the paper. A major part of AP’s plan included following a strategy based on gaining competitive advantage as well as achieving sustainable entrepreneurial growth. Let us first examine competitive advantage to see how and where it will fit in with the overall growth and expansion of the AP region. Michael E Porter has paved the way for revolutionary strategising trends and a whole new perspective on competition through his competitive advantage theory. In the corporate world, Porters first book Competitive Strategy (1980), which he wrote in his thirties, became an international best seller, and is considered to be an authoritative piece of work on corporate strategy. The book, which has been published in nineteen languages and re-printed approaching sixty times, changed the way business leaders’ minds worked. Further, it remains a guide of choice for strategic managers on a global scale. Apart from being rich in lessons about why and how industries, regions, and nations succeed or fail, this book is of great value as the first serious attempt to develop a really original grand theory of national economic development processes since the early years of Postwar development economics, and one of the most original ways of thinking about development policy in years. This brings us to a discussion on the technicalities of the model proposed by Porter. Porters Five Forces model provides suggested points under each main heading. When taken into consideration individually, each of these gives rise to the development of a broad and sophisticated analysis of competitive position. This may further be used during the creation of a strategy, plans, or even where making investment decisions about a business or organization is concerned. This is where the foreign direct investment patterns come into play for the AP region – especially for Japan, considering the growth in its output and the subsequent growth of disposable income within the countries in this region. (Kandil, 1999) These five competitive forces determine industry profitability and attractiveness apart from being responsible for shaping the prices that firms can charge, the costs they have to bear, and the required investments to engage in industry level competition within the AP region. We are concerned with the fact that Porter’s essentially ahistorical approach cannot provide a full account of either a nation’s competitive advantage and corporate strategies or the growth and development of industrial clusters. For this, let us first understand competitive advantage. This has special relevance for the AP region, owing to the following reasons: The countries like Japan, India and China need to launch a full fledged expansion policy. This region needs to zero in on resources which can be procured on easy and regular terms. It has used the strategy of price flexibility and output variablity. This growth leads to a revenue growth, which in turn implies that people have greater disposable income and spending power. There is now a focus among firms in these regions regarding the marketing options in order to gain competitive advantage as there are many players involved here. (Kandil, 1999) Foreign Direct Investment through Competitive Advantage Competitive advantage is the response of a firm to the pressing need to organize and perform discrete activities. While these needs may not be perpetually spelt out, it is the responsibility of the planners and executers of policies to foresee such situations when catering for growth and development of the firm n various levels. So this implies that the AP region has employed an individual perspective with an affiliation towards the basic industry type as the international market is at least 10 times larger than that within the region. This has led to a growth in related industries like infrastructure, telecom, transport and others due to which foreign direct investment in the region has grown by leaps and bounds owing to greater interest in the region. (Kandil, 1999) Let us take the case of Japan. They have used foreign direct investment as a structural tool for reforming the economy through the sheer force of greater productivity. This process began in 1995 and has managed to link the US and Japanese economy effectively in 2004 (METI – Policy Information). The basic explanation for this comes from the fact that any change on an individual level is effected by changes on a national level. Yet, Porter’s theory cannot accommodate strategies and competitiveness at such levels due to various constraints. The first of these emerges from the fact that people run businesses and economies – and everyone has his or her own unique style. These cannot be covered at length when talking which factors and resources will be utilized in which combination. Thus Porter’s theory does not provide an accurate account of the diversity and dynamism in the corporate and commercial environment that businesses and firms thrive in. Secondly, there are various activities to take into consideration in the case of the AP region. The activities performed when competing in a particular industry can be grouped into categories, as these activities can be divided broadly into primary activities and support activities. It has been noted that primary activities are those involved in the ongoing production, marketing, delivery, and servicing of the product. Whereas support activities are those that provide purchased inputs, technology, human resources or the overall infrastructure functions supporting the other activities. Every activity employs purchased inputs, human resources, some combination of technologies, and draws on firm infrastructure such as general management and finance. Activities vary in their importance in regard of competitive advantages from industry to industry. (Porter M E, 1998). While this is a good theory to reckon with, cynics are of the opinion that in today’s world there are ‘n’ number of influences on a firm’s activities and not just a set number of the same. In this regard, all the activities of the AP have been designed to contribute to the creation and development of buyer value, which may be defined as the consumer base of a firm and its product in qualitative as well as quantitative terms. Therefore, in keeping with the theory developed by Porter, the buyer value of the AP must be viewed as directly proportionate to the effort put in by the firm when providing various customer and other services especially in terms of time and quality maintained. In this way, the firm can create value for its buyers where the ultimate value a firm created is measured by the amount buyers are willing to pay for the product or service offered in terms of the various activities it indulges in, as specified above. In this regard, the AP region may make use of clusters which are groups of firms and other broad industries linked to each other on the basis of various skill and their subsets. These function in the sphere of providing the necessary technical and research based support for various customer services, by making use of various institutions and universities apart from interns and other individuals. A cluster that has been well formed and makes the required effort to be called well functioning is one that contributes to the advancement of an economy in terms f growth and development. This is a crucial aspect that most firms tend to ignore. In this way, one can measure the implications of the theory and growth thereof, in a more accurate and reasonable manner. This also helps avoid monopolistic tendencies within markets in order to make sure development is not impeded. According to the article for the Special Articles, where R Nagaraj talks about the revolution in the foreign direct investment market and trends in India, most of this direct investment is taking place online. (Nagaraj, 2003) The policies and trends of the patterns of foreign direct investment in India have also been studied in context of the theories put forward by Kamlesh Ghakar in Foreign Direct Investment in India 1947 – 2007: Policies, Trends and Outlook. In order to reach a certain consensus on the appropriate simulation model, this concept of consumerism and the choices that emanate thereof, will be discussed in terms of supply change management strategies and how these will differ from real time transactions and businesses. It has been seen that the mobilization of resources for online trading is particularly challenging and this issue will be tackled through the work by Anurag Gupta and Larry Whitman in their article titled, Supply Chain Agent Decision and System. This article has laid down the framework for the effective mobilization of resources as well as the current drawbacks in the existing systems. This will help me generate a model that will support an appropriate simulation approach. This brings us to the issue of equality, which is a major requirement for the development of a region. The more consistent and widespread the development, the more advanced its overall economy can be called. Unless there is mass involvement in various policies and acts, an industry or a sector of the economy, cannot be called developed by itself. Trade and Commodity Chains In the context of the AP region, does Porter’s theory ask the relevant questions? What must the region do to ensure that the industry evolves in a way that is maximally advantageous for the organization in particular? What skills and capabilities must the various industries begin building now if it is to occupy the international industry high ground in the future? How should the company organize for opportunities that may not fit neatly within the boundaries of current business units and divisions? The answers are to be found in not in this theory but in the theories propounded by Gary Hamel, C.K. Prahalad titled Competing for the Future. The authors are of the firm belief that when armed with the information in their findings and subsequent theories, a company can create a pro-active agenda for organizational transformation and can control its own destiny by controlling the destiny of its own industry. Few companies that began the 1980s as industry leaders ended the decade with their leadership in tact and undiminished. Many household name companies saw their success eroded or destroyed by tides of technological, demographic and regulatory change and order-of-magnitude productivity gains made by nontraditional competitors. "Do you really have a global strategy", the first article by Hamel and Prahalad, developed the theme that small companies could prevail against larger, richer companies by inventing new ways of doing more with less. Differences in resource effectiveness could not be explained by efficiency, labor or capital, but by amazingly ambitious goals that stretched beyond typical strategic plans, raising the question how such incredible goals could get past the credibility test and be made tangible and real to employees? As if in answer to this question, managers of late, have created new competitive space while sick units have protected the past rather than creating the future. In this regard, Porter’s existing theory throws little light on what it takes to fundamentally reshape an industry and the gap provoked this book in which the goal is to enlarge the concept of the industry and not just the organization. Being incrementally better is not enough because a company that cannot imagine the future wont be around to enjoy it. (Hamel et al, 1996) New competitive realities have broken down various industry boundaries as far as the lifestyle segment in India is concerned. Also, a large chunk of the standard management practice has been discarded, while the conventional models of strategy and growth have been declared obsolete. These have been replaced by the powerful ideas and methodologies of Gary Hamel and C.K. Prahalad, whose much-revered thinking has already given birth to a new language of strategy. While it is true that their work paves the way for the development of a coherent model for how todays executives can identify and accomplish no less than heroic goals in tomorrows marketplace, one can also determine ways for executives to ease the tension between competing today and clearing a path toward leadership in the future on a more global level through the basic framework of the theory laid down by the authors. This will hold testament to the importance and relevance of competitive advantage that forms the backbone of so much of todays accepted wisdom. Each argument put forward by the authors is clear and is seen to be progressing through the reasons behind competitive strategy being believed to be less mechanical that the claims of Porter in his theory of competitive advantage. Therefore, Porter’s approach lacks the underlying belief that winning in business today is not about being number one - its about who "gets to the future first", thus making the "core competencies" approach the right one to strategic planning when it comes to providing a full account of either a nation’s competitive advantage and corporate strategies or the growth and development of industrial clusters. Economic theory and empirical evidence supporting the use of competition policy measures in AP for Internationalization The commonly perceived fact in economic theory is that monopoly is basically bad and market competition between firms is diametrically opposite as it contributes to the cause of consumer welfare. If we were to view the competition policy measures in emerging markets from a developmental and international perspective, we would come to the conclusion that contrary to conventional wisdom, while the evidence seems to be conflicting in terms of static measures of concentration, many different studies and indicators of the dynamics of the competition process as well as economic theories and various kinds of evidence suggest that the intensity of competition in leading emerging markets is certainly no less, if not greater, than that seen in the advanced countries. (Singh, Ajit; 1998). Among the indicators cited in the evidence surrounding this theory, are the market shares of three or four leading firms in leading emerging markets, Japan, the EU and the US, and the persistence of profitability over a period of years - in emerging markets as well as the industrialized world. But the point is that such indicators do not provide any evidence about emerging markets not having competition. While they might not have felt the requirement in the past, developing countries are waking up to the avenues that are presented by the adoption of national competition policies and the measures suggested by the same. However, the current competition policies in the US and the EU have been rendered inappropriate for developing countries. An important school of thought points to the fact that developing countries need to formulate national competition policies to foster competition along with state-directed cooperation for promoting development as well as fuel a higher level of economic outcome. Besides the level of development, the governance capacities and the supporting institutional framework tend to influence the choice of a competition policy for developing countries. Apart from this, maximum competition does not necessarily maximize economic efficiency. Analysis and evidence are an illustration of the fact that maximum competition is not necessarily the best bet in terms of dynamic efficiency, i.e., maximization of an economy’s long-term productivity growth. The issue of economic growth in terms of productivity and dynamic efficiency brings us to the question of whether or not competition policy measures contribute to the same. In the context of economic theory and supporting empirical evidence, it has been established that the relationship between competition and economic development has been a controversial one. In view of the new developments in the theory of industrial organization indicating that the proposition regarding the excess of competition is valid and that maximum competition is not necessarily the optimal degree of competition, either for promoting economic welfare in the static sense as well as dynamic terms for maximizing long-term productivity growth in the economy; hypothesis by economic orthodoxy stating a monotonic positive relationship between competition and economic development, has been qualified by modern economic analyses. As a rational conclusion to the perception that the case for competition spurring economic efficiency is very weak in real market conditions, it can be assumed that a suitable combination of cooperation and competition is more likely to enhance societal as well as economic welfare rather than competition alone - a conclusion supported by the examples set by East Asia, China as well as industrial countries. In relation to innovation, inter-firm coordination among horizontal competitors can bring substantial benefits. According to the empirical evidence as well as conventional theories, there is an emphasis on the economic rationale behind vertical restraints that are voluntarily taken as it includes the issue of efficiency as well as anticompetitive motives. In this regard, it is to be noted that a competition policy can be called suitable for developing countries when it has the capacity to restrain anti-competitive behaviour by domestic privatized large firms, limit abuse of monopoly power by mega-corporations created by the international merger movements and promote development. It is only under such conditions that the cause of economic efficiency and growth will be furthered. If competition is to be explored as the relationship between competition policy measures and economic growth, it can be carried out from a number of perspectives. To take into consideration empirical analysis, we can summarise that the evidence does not suggest trade liberalisation and competition law as effective substitutions for economic and societal welfare. On the basis of very thin empirical evidence, it can be deduced that competition laws and policies will merely assist competitiveness. Even though the short term social costs of the transition to a more competitive economy can be highly significant, they will be insignificant when compared to the long term costs of the economy not being competitive – a trait that no economy can afford to have in today’s day and age. Therefore, the empirical evidence needs to be stronger and the economic theory pointing to such assumptions need to be adapted to suit the state of the current world economy besides being more elaborate. The effectiveness of competition policy measures has been assessed in various transitional economies in the areas of enforcement, competition advocacy and institutional effectiveness. Such studies show that the competition policy is strong enough to complement the dynamics of a growing economy as well the positive relationship between effective competition policy implementation and expansion of more efficient private firms. (Dutz Mark A; and Vagliasindi Maria; 2000). On the basis of the above information, if we were to talk strictly in terms of developing countries like those in the AP region and how competition can help their economies evolve and emerge as competent compared to the developed countries, we will find many who are of the view that competition policy and law are tools for the rich and urban society. They are highly mistaken. Going strictly by economic theories, the design and implementation of a competition policy at the macro level will enable the enhancement of the welfare of poor consumers; while an effective competition regime or consumer law (covering competition distortions) at the micro level can prevent consumer abuses both at the industry level as well as in a more rural setting. It is beyond a doubt that an appropriately designed competition law should be an integral part of every governments’ central framework policies. For that, the basic requirement is to design a model that gives evidence of the detrimental effects of barriers to import (in case of larger countries), and the domestic entry on the basis of a certain mark up price (in case of smaller countries). These factors show that a proper competition policy, with appropriate advocacy, complements other government policies aimed at competition by inhibiting existing as well as growing barriers. The empirical models pointing to evidence regarding the advantages of the use of competition policy measures need to concentrate more on those economic theories that support the need for different policies for different nations, in a more global context. The fact is that the world has shrunk and economies are becoming more open by the day. Apart from this, we need to break out of conventional views by taking stock of our current situation and basing research, studies and facts on the same. References Kandil, M (1999). Price Flexibility and Output Variability: What do we learn from disaggregate data? Elsivier Science. Foreign Direct Investment in Japan. URL: www.meti.go.jp (Accessed during: Dec, 2008) Nagaraj, N (2003). Foreign Direct Investment in India in the 1990s. Special Articles – Economic and Political Weekly. Ghakar, Kamlesh (2006). Foreign Direct Investment in India 1947 – 2007: Policies, Trends and Outlook. Eastern Book Corporation. Swisher, P; Kasten, G W (Sep, 2005) Post Modern Portfolio Theory. The Journal of Financial Planning. Markowitz, Harry M. (1952). Portfolio Selection, Journal of Finance, 7 (1), 77-91 Thomas Friedman, Farrar Straus and Giroux. The World is Flat. New York, 2005 Gary Hamel, C.K. Prahalad. Competing for the Future. Harvard Business School Press (1 Mar 1996) Henry Mintzberg. The Rise and Fall of Strategic Planning. Financial Times Prentice Hall (24 Feb 2000) Michael E Porter. The Competitive Advantage of Nations. Free Press (1998) Third World Network, Last Updated: 15 May, 2006, Twnside.org, Viewed on: 16 May, 2006, URL: http://www.twnside.org.sg/index.htm Affiliated to: Google.com, Viewed on: 15 and 16 May, 2006, URL: http://72.14.207.104/search?q=cache:MvuqNzPyY-kJ:www2.warwick.ac.uk/fac/soc/economics/staff/faculty/slade/wp/ecsept2005.pdf+competition+policy+measures+-+economic+theories+and+empirical+evidence&hl=en&gl=in&ct=clnk&cd=6 Consumer Unity And Trust Society, Last Updated: 2005, Cuts.international.org, Viewed on: 16 May 2006, URL: http://www.cuts-international.org/index.asp Read More